Indian millennials are taking to peer-to-peer lending for investment

Millennials have been early adopters of the sharing economy and this trend has been visible across various P2P lending platforms like Lendbox and i2iFundingPriyanka Sangani | ET Bureau | May 13, 2017, 10:26 IST

When 28-year-old Karan Lalchandani had to take a call on expanding his investment portfolio, he steered away from the common options -real estate, equities and precious metal.Instead, he took a small loan on peer-to-peer (p2p) lending platform Faircent.

“I didn't need the money, but I wanted to see exactly how it works,“ the IT services executive said.

Satisfied with the stringent process he underwent as a borrower, Lalchandani created his investor profile and in the last few months, has lent close to Rs 2 lakh to about 20 borrowers.

Lalchandani is part of a growing tribe of young professionals who, not happy with the rate of return or long lock-in period that traditional investment options have, are looking at the p2p lending model.

According to Rajat Gandhi, chief executive of Faircent, about 60% of the 10,000 lenders on the platform are under the age of 35, with a significant chunk being under 30. “Most 30-year-olds haven't experienced a good asset class.This offers quick returns monthon-month,“ he said.

It helps that the process is done entirely online and investors can start with amounts as low as Rs 5,000. The lender can select a high, medium or low-risk borrower and accordingly can stand to make between 14-30% annually on his investment. Most firms have stringent requirements - six months' bank statement, CIBIL score, salary and tax statements - which they use to sort borrowers into different risk categories. Lenders too, add their filters to the mix.

Delhi-based businessman Amarsh Chaudhary said, “In addition to the risk categorisation, I look at factors like a person's credit history, job stability and whether they provided a permanent address when deciding who to lend to.“ Several of his friends have asked him about the p2p model after he started investing a year ago.

Gandhi said millennials have been early adopters of the sharing economy and tend to have slight aversion to big corporate houses, which makes this model attractive to them.

This trend has been visible across various p2p lending platforms like Lendbox and i2iFunding, many of which rely solely on social media to reach out to this lender profile. Chaudhary, for instance, came across p2p lending through a simple online search on investment options.

Raghavendra Singh, cofounder of i2iFunding, said the shift is recent. “When we started out in 2015, 80% of the lending was done by 10-15 large investors. Now we have 1,500 investors, 30% of whom are under 30. Many of them start with investments of Rs 5,000 and increase it over time.“

The firm offers a principal protection option for investors which makes it easier for first-timers to start lending on the network. While the majority of lenders tend to be salaried professionals looking for additional investment avenues, there are also businessmen - some as young as 25-who are fairly active.

Many of these young investors come from a traditional money-lending family and use this as a more structured and professional way of continuing with the lending business while pursuing a corporate career.

A 31 year-old employee of a private equity fund, who preferred to remain anonymous, told ET that the key attraction for him when he first started investing two years ago was the higher rate of return compared with traditional options and the liquidity that the monthly returns ensured.

Bhuvan Rustagi, cofounder of Lendbox, said that while the average ticket size tends to be smaller with millennial lenders - often a function of the limited investible surplus they have early in their careers - they accounted for a large part of the volumes.

“Thirty five percent of our lenders are under 30; if we extend this to people under 40, then the number would be as high as 70%. The borrowers, too, tend to be much younger about 60% would be of a similar profile,“ he said.

Meanwhile, the still nascent industry continues to wait for RBI guidelines, which would bring in a higher level of regulation. Most people expect clear regulations will only make p2p lending an attractive option to a larger set of people.